Rates hike over next 3-6 months unlikely

Bank Negara Malaysia is likely to pause rates again at its next meeting on Nov 12, says Senior Economist at AmResearch, Manokaran Mottain.

"With Bank Negara having frontloaded rate hikes in the earlier part of the year, we see greater flexibility in keeping to a neutral stance. In our opinion, there will be no more hikes over the next three to six months," he said in an economic update report today.

The central bank at its last meeting in September, held the overnight policy rate (OPR)steady at 2.75 per cent.

Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz had cautioned yesterday, that the central bank would not hesitate to intervene in the currency market, if movements in the ringgit became "disorderly".

The ringgit this morning, traded at 3.1000 against the US dollar compared to 3.0940 on Tuesday closing. Year-to-date, the local unit has strengthened nearly 10.5 per cent against the dollar, as investors pump cash into higher-yielding emerging market assets.

"More and more emerging countries are beginning to tighten the noose around speculative activities, as inflow of hot money can cause their currencies to appreciate beyond fundamentals, damaging competitiveness.

"We do not think Bank Negara will resort to any more capital controls, as it will certainly affect investor confidence, at a time when we are attempting to lure foreign direct investments," Manokaran added.

Instead of capital controls, Malaysia, he said, can strengthen the financial market and its reserves while adopting a firmer policy to deter speculative activities in the property market such as putting a cap on the third housing loan or tightening rules on foreigners purchasing residential properties.

This, he explained, can likely discourage the inflow of hot money and the creation of a bubble in certain asset classes."The central bank may have to consider unorthodox counter-cyclical measures, even if it means a rate cut," he said.

He highlighted that recent data showed inflation moderating to 1.8 per cent in September, from 2.1 per cent in August, and this further supported Bank Negara's flexibility in containing any asset bubble in the system. — Bernama